For much of 2023 and 2024, the discussion in the restaurant industry centered on weak traffic. A lot of restaurant chains were struggling to bring in the same number of customers as the year before, at least without building new units.
The blame was largely targeted at menu price inflation and consumer finances. Americans ran out of pandemic savings and inflation eroded some of their buying power, so as menu prices took off they adjusted their spending accordingly. And there’s certainly something to that.
But there’s another thing: demographics.
The U.S. population is aging. Most of the Baby Boom generation has hit 65. Once people hit that age, they are less likely to dine out.
“There’s some structural issues with our economy that aren’t just inflation related,” said Rich Shank, senior principal with Restaurant Business sister company Technomic. “Aging population and growth numbers are making traffic hard, too.”
This is not a new concern. Technomic raised demographic concerns with regards to the restaurant industry in 2018 and 2019, when the business faced some traffic challenges. Then the pandemic happened and our thoughts shifted to something else, namely whether restaurant chains would survive or not.
The aftermath of the pandemic then brought a range of other issues like soaring costs, thinning margins and concerns about closed restaurants and bankruptcies.
The industry has actually performed relatively well over the past couple of years, despite all those concerns. According to federal retail sales data, 53% of Americans’ food dollar was spent at restaurants and bars. That’s up from 50% in 2019. But it’s all price, people say. Sure, but that’s still indicative of a consumer that is willing to spend more at restaurants.
But that could also explain the vitriol with which they greeted restaurant pricing in recent years. They’ve been spending more than they traditionally had and the higher prices were putting more pressure on budgets than we may appreciate, particularly for lower-income consumers.
At the same time, however, demographic changes could make it that much harder for restaurants to generate much organic growth, either through new units or just by getting more customers.
That means more traffic challenges down the road.
The percentage of Americans who are 65 and older has steadily increased over the past 15 years, according to the Kaiser Family Foundation. By 2023, 17.8% of the population was at that age.
By comparison, the percentage of Americans 35 to 54—prime restaurant use years—has steadily declined over that same period, from 29.1% to closer to 26%, where it’s held for the past couple of years.
That group’s growth in the 1990s and 2000s helped fuel massive industry growth over that period.
The percentage of children under 18, meanwhile, has been on the decline, from 26% to 23%. The remaining groups have been largely steady.
It’s not going to get much better. The U.S. Census Bureau said that the over-65 population is expected to increase over the next 15 years, reaching 20.4% by 2040.
“If population isn’t growing as fast and we’re getting older, there’s fewer consumers in the foodservice sweet spot, in terms of spending,” Shank said. “As the population gets older, it’s going to be a pretty tight market.”
Once kids graduate from high school and are no longer in sports or other activities, demand for some convenience-oriented sales declines. It declines even more once people retire, because they’re no longer grabbing a quick bite on their way to work or during lunch.
All of which means the intense competition that was the hallmark of 2024 isn’t going away anytime soon, and operators will have to be on their game. Because this business isn’t getting any easier.